Stay Informed!

By Carl Rist on 10/20/2011 @ 12:30 PM

Tags: Entrepreneurship

Basic microeconomic theory teaches that – all things equal – as the price of a good or service goes up, the quantity demanded goes down. However, a new and innovative self-employment tax service provided by Brooklyn Cooperative Federal Credit Union demonstrates that many small business owners actually prefer to pay a fee for tax assistance, rather than using a free tax assistance provider. Moreover, by charging a nominal fee for its services, Brooklyn Cooperative is creating a sustainable model that will allow it to reach even more small businesses in the future.

Brooklyn Cooperative is a community development credit union that supports the economic development of the Bushwick and Bedford-Stuyvesant neighborhoods through services that include consumer, business and home loans, as well as core financial services. In February 2010, Brooklyn Cooperative began an effort to provide low-cost tax preparation for small business owners as a strategy for helping these businesses to formalize and grow, create jobs, and access tax-based asset-building supports. With a grant from CFED, made possible by generous support from Morgan Stanley, Brooklyn Cooperative became one of three Self-Employment Tax Initiative (SETI) “innovation sites” for the 2010 tax season (calendar year 2011), each demonstrating a different service delivery method. Rather than providing free tax assistance with rigid income restrictions, Brooklyn Cooperative’s innovation was to charge a below-market fee and make their services available to any independent contractor or small business owner needing help with taxes.

The results were impressive. In its second year of operations, Brooklyn Cooperative’s Business Tax Counseling program served 121 small business owners, a six-fold increase in volume compared to the previous tax season. What’s more, unlike other self-employment tax assistance providers, for whom many clients use self-employment primarily for “income patching,” making use of a fee-for-service model may have actually attracted more intentional small business tax filers to Brooklyn Cooperative. Such clients tend to be more interested in growing their businesses and are more prepared to do so.

For more information about Brooklyn Cooperative’s fee-for-service innovation, download the bulletin here.

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